Bhg
  • Shop
  • News
  • Food
  • DIY
  • Garden
  • Renovating
  • Decorating
  • Health
  • TV
  • Hard to Find
Bhg
  • Shop
  • News
  • Food
  • DIY
  • Garden
  • Renovating
  • Decorating
  • Health
  • TV
  • Hard to Find
Subscribe
  1. Home
  2. Property

Mortgage words first home buyers need to know

Think of it as a mortgage dictionary. - by Laura Barry
  • 11 Nov 2019
Mortgage words first home buyers need to know

Buying your first home is a difficult business. Saving money, finding a property and finalizing a sale are all time-consuming an emotionally draining processes that can wear you out and wipe the shine from owning your own home. But to make matters worse, the paperwork for the purchase of your home is usually littered with financial jargon and words that are hard to understand, or confusing.

With that in mind, we asked online home loan company Lendi to decode the financial jargon you’re likely to encounter on your way to home ownership, and what it all means.

Loan to value ratio (LVR)

“This is the ratio of the loan amount you borrowed to the price of  the home you purchased. A low LVR is favourable as the lender sees you as a less risky borrower and removes the need to pay LMI.”

Lenders mortgage insurance (LMI)

“Lenders mortgage insurance is a fee lenders charge borrowers who have low deposits.  It’s important to remember that LMI protects the lender, not the borrower in the event that the borrower defaults and can no longer make their repayments. An LMI is calculated based on a number of factors including:”

    • the size of your loan
    • your deposit amount
    • if the property is for investment or personal use
    • employment stability
    • your lender’s insurer

Refinancing

“This is simply the process of replacing an existing mortgage with a new loan. Homeowners generally choose to refinance to reduce repayments, lower their interest rate, or change their loan features.”

house up for sale
Getty

Stamp/transfer duty

“A one-off fee that must be paid upfront when you purchase your property or land. As this is a state and territory tax, this cost varies depending on where the estate is located. However, some first home buyers may be eligible for a concession, which also varies based on location.”

Pre-approval

“A home loan pre-approval is an indication that a lender is likely to approve you for a home loan, for a fixed amount, based on your current financial situation.

Fixed interest rate vs variable interest rate

“You can choose to pay the interest on your loan in a number of ways. Ask yourself whether you require the stability of a fixed rate over the flexibility of a variable rate.”

Variable rate loan

“These loans have variable interest rates that rise and fall with market rates. These loans generally give you the option to make extra repayments.”

 Fixed rate loan

“Loans with fixed interest rates have a set interest rate, generally for one to five years. Keep in mind you won’t be able to benefit from falls in interest rate and they can be costly if you want to refinance during the fixed rate period.”

Split loan

“You may also want to consider a split loan which is essentially a combination of a variable rate loan and a fixed rate loan. “

young couple signing documents
Getty

Principal and interest repayments vs interest only repayments

“How you repay your loan can have a big impact on your finances. You’ll be asked if you want to make principal and interest repayments, or interest only repayments.”

Interest only

“Here, you are only paying off the interest charged on your loan, rather than the loan itself, for a set period of time (typically one to five years). It generally means you’re not repaying the loan at all in this period and will pay more interest in the long run.”

Principal and interest

“This consists of both the amount you initially borrowed (the ‘principal’) and the interest (or cost of borrowing). This option means you pay less interest overall and will own your home outright sooner.”

Redraw facilities and making extra repayments

“Redraw facilities let you make extra repayments and then access these repayments at a later time if you need the funds. It’s worth noting that fixed rate loans typically don’t have extra repayment functionality.”

for sale sign
Getty

Home loan portability

“If you think you might move home in the next few years, a home loan with this feature will allow you avoid break cost fees if you want to hold onto your loan when moving to a new property.”

Repayment holidays

“A small break period from making repayments when your cash is needed elsewhere, such as taking time on parental leave.”

Repayment frequency and schedule

“More frequent repayments, such as fortnightly rather than monthly, can mean a saving in interest in the long run since lenders calculate interest daily. Remember to choose a repayment schedule that suits your own lifestyle and income.”

You might also like:

5 signs you are ready for home ownership

The upfront costs that hit the hardest when buying a house

The BHG guide to home ownership

  • Property
  • Finance
Laura Barry
Laura Barry
Laura Barry is a writer, bookworm and interior design enthusiast with a love for reporting on all things homes, travel and lifestyle. When not tapping away at her keyboard, Laura can be found making endless cups of tea or perusing the shelves of Sydney’s many bookstores.

Treat yourself to a subscription-Save up to 25%

Plus, your chance to win

Subscribe Now
Treat yourself to a subscription

Treat yourself to a subscription-Save up to 25%

Plus, your chance to win

Subscribe Now
Treat yourself to a subscription

Dream Homes

Powered By

Recommended to you

YOU’LL NEED A WEDGE TO HANG THAT DOOR
Watch 6:32

YOU’LL NEED A WEDGE TO HANG THAT DOOR

{headline}

{headline}

3 ways to pay off your home loan faster

3 ways to pay off your home loan faster

How to choose the right home loan for you

How to choose the right home loan for you

Home loan application advice for first-time buyers

Home loan application advice for first-time buyers

Hacks to pay off your mortgage early

Hacks to pay off your mortgage early

{headline}

{headline}

5 legal ways to reduce your capital gains tax on investment property

5 legal ways to reduce your capital gains tax on investment property

How you can save money on your home loan by going green

How you can save money on your home loan by going green

This is how long it takes to save a home deposit in Sydney

This is how long it takes to save a home deposit in Sydney

{headline}

{headline}

The potential property hotspots for 2020

The potential property hotspots for 2020

The January 2020 changes all first home buyers need to know about

The January 2020 changes all first home buyers need to know about

Why you should reconsider hosting an open house inspection

Why you should reconsider hosting an open house inspection

Three things you should never do at an open house inspection

Three things you should never do at an open house inspection

How just one credit card can affect your home loan application

How just one credit card can affect your home loan application

Simple things you can do to increase the value of your home

Simple things you can do to increase the value of your home

How to keep your Airbnb property booked all year round

How to keep your Airbnb property booked all year round

Bhg
  • About Us
  • Subscribe Today
  • Contact Us
  • Terms and Conditions
  • Privacy Policy
Bhg Magazine Subscribe
  • About Us
  • Subscribe Today
  • Contact Us
  • Terms and Conditions
  • Privacy Policy

Brands

  • All Recipes
  • BHG Shop
  • Girlfriend
  • Home Beautiful
  • New Idea
  • New Idea Food
  • Practical Parenting

Our Network

  • marie claire
  • Beauty Crew
  • Who
  • Women's Weekly Food
  • Bounty Parents
  • That’s Life
  • Perth Now
  • The West Australian
  • 7Plus
  • 7mate
  • 7NEWS
  • 7Sport
  • Sunrise
  • Starts at 60
  • Hard to Find
© 2022 Are Media PTY LTD
All products are independently selected, tested or recommended by our team of experts.If you buy something, we may earn an affiliate commission.
Get more from Better Homes and Gardens

Magazine Subscription Offer

Treat yourself to a subscription-Save up to 25%

Shop This Offer
Treat yourself to a subscription